Microsoft Earnings Top Expectations as Cloud Exceeds Goals

Microsoft's new fiscal year got off to a much better start than expected, with the company reporting $24.5 billion in revenues for its first FY18 quarter, more than $1 billion higher than analysts had forecast.

The big news from Thursday's earnings release is that Microsoft's commercial cloud revenue surged to $5 billion for Q1, a 56% year-over-year increase, putting the company ahead of its three-year goal set in 2015 to achieve an annual run rate of $20 billion for the business.

The number of commercial Office 365 subscriptions has now topped 120 million, as well.

Microsoft said the company's commercial cloud business will reach $20.4 billion this year. Azure revenues rose 90% quarter-over-quarter, showing the company continues to mount a formidable challenge against Amazon Web Services (AWS), whose parent company Amazon.com also reported earnings on Thursday. AWS posted $4.6 billion in revenues for its quarter, up 42% year over year.

Microsoft doesn't break out cloud revenues, but its commercial cloud business includes Azure, Office 365 and Dynamics 365. Overall, Microsoft's "intelligent cloud" revenues, which also include its server business, reached $6.9 billion. Revenues from its LinkedIn business, acquired by Microsoft last year, reached $1.1 billion.

Windows and hardware revenues of $9.4 billion were notably higher than the $9 billion analysts had forecast, boosted by sales of Microsoft's new line of Surface hardware and Windows OEM licensing. The Surface business grew 12% quarter over quarter, while Windows OEM licensing increased 4%. Xbox revenue was up 21%, as well.

[Click on image for larger view.]Summary of Microsoft earnings by business unit, Q1 FY2018. (Source: Microsoft)

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.